Tornado Cash Wins Lawsuit: Does Technological Neutrality Equal Innocence?
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Tornado Cash Wins Lawsuit: Does Technological Neutrality Equal Innocence?
The core legal reasoning behind this ruling may well be the key entry point for understanding the relationship between future technology and law.
Navigating Web3 tides with focused insightsAuthors: Liu Honglin, Iris
Major developments emerge in the Tornado Cash case!
The U.S. Fifth Circuit Court of Appeals recently ruled that the immutable smart contracts of Tornado Cash do not meet the legal definition of "property" under traditional law, rendering sanctions imposed by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury as exceeding its authority. While this ruling on the Tornado Cash mixer may be welcome news for most Web3 developers, it does not mean developers can entirely distance themselves from liability.
As legal practitioners in the Web3 space, ManQin Law believes it is essential to extract deeper insights from these two cases: Does technological neutrality truly equate to full immunity? What principles can guide the judiciary in distinguishing responsibility between technology tools and user actions? The core legal reasoning behind this ruling may well be the key to understanding the future relationship between technology and law.
Core Dispute in the Tornado Cash Case: Is It Property?
The central issue in the Tornado Cash case revolves around whether a smart contract qualifies as "property" under the law—a determination that directly affects the legality of OFAC’s sanctions. One might ask: What connection exists between classifying a smart contract as property and the U.S. government's ability to sanction it?
Under the International Emergency Economic Powers Act (IEEPA), the U.S. Treasury may only impose asset freezes or controls when the target is legally defined as "property." In this case, OFAC argued that Tornado Cash, as a cryptocurrency mixing tool, played a central role in helping bad actors obscure fund origins and was closely linked to money laundering activities. According to OFAC data, in 2021, North Korea’s Lazarus Group laundered over 65% of its illicit funds through Tornado Cash. Therefore, despite being a technical tool, its real-world usage rendered it a form of “property,” justifying sanctions.
However, the Fifth Circuit Court disagreed. It emphasized that the use of a smart contract cannot determine its legal nature, nor should illegal user behavior retroactively classify it as "property." The underlying smart contract of Tornado Cash is self-executing, decentralized code—neither ownable, controllable, nor subject to exclusive use—and thus fails to meet the traditional legal criteria for property. Based on this, the court concluded that OFAC exceeded its statutory authority.
This dispute has sparked broad debate over technological neutrality. Supporters argue that technology itself is neutral—the original intent of mixers like Tornado Cash is to protect user privacy, not facilitate crime. Critics counter that society should not bear the full burden of technological abuse, and developers must be held accountable. This tension is further illustrated in the U.S. Department of Justice’s criminal charges against Tornado Cash co-founders Roman Storm and Roman Semenov. Prosecutors allege that the developers knowingly promoted a tool they understood would be exploited for money laundering, thereby becoming complicit in criminal activity.
This raises a deeper question: When a technology’s intended purpose diverges from its actual use, how should the law respond? How can we balance the uncontrollable nature of decentralized systems with their potential societal risks? And where should the legal boundaries of developer responsibility lie?
These questions are not confined to the United States. Globally, jurisdictions face similar challenges, while China’s legal practice reflects a distinctly different regulatory philosophy and judicial logic.
China’s Regulatory Perspective: Legal Intervention Based on Actual Use
Unlike the U.S., which focuses on developers’ legal liability, Chinese courts tend to assess technological neutrality based on a tool’s actual usage and social impact—particularly whether it harms public interest or disrupts social order.
The Kuaibo (QVOD) case stands as a classic example. While the Kuaibo media player was an efficient technical tool, its architecture enabled widespread distribution of pirated content. The court found that Kuaibo Corporation, despite knowing its product could be abused, failed to implement effective technical safeguards and instead optimized the design to encourage greater usage. Ultimately, the court interpreted this passive tolerance as indirect participation in copyright infringement. This precedent demonstrates that China’s recognition of technological neutrality is conditional: developers’ foresight into potential misuse and their mitigation efforts are key factors in determining legal responsibility.
This regulatory approach extends to fintech as well. For instance, in a 2019 Hunan-based Bitcoin mining facility case, the court ruled that although the facility did not directly violate laws, its high energy consumption caused tangible harm to public resources, violating local energy management regulations. This illustrates that China’s legal framework evaluates not only the legality of the technology itself but also its broader social consequences.
Moreover, Chinese jurisprudence often examines whether developers had sufficient foresight into potential risks. In the 2019 Token Better illegal fundraising case, the platform provided virtual currency trading functions that facilitated unlawful public fund-raising. While the main liability fell on platform operators, the court noted that the technical team failed to implement blocking mechanisms despite awareness of potential misuse. Such negligence was seen as tacit approval of illegal acts, indirectly increasing the platform’s legal exposure.
Further, China emphasizes how developers use technical measures to ensure compliance. In a blockchain-based poverty alleviation project backed by a local government, vulnerabilities in the smart contract design allowed malicious actors to alter and divert funds. Judicial investigation concluded that the development team failed to adequately assess security risks and did not meet reasonable safety standards, resulting in partial liability for remediation and accountability.
Nonetheless, Chinese courts do not categorically condemn all technology tools. For certain privacy-enhancing technologies, courts have affirmed their legitimacy. In a 2020 legal dispute involving an encrypted messaging app, the court ruled that end-to-end encryption services were inherently lawful and that developers could not control user behavior; thus, they bore no responsibility for misuse. This decision protected innovation while establishing clearer boundaries for developer liability.
Returning to the central issue: When encryption technology shifts from privacy protection to enabling money laundering or fraud, how should a developer’s “duty of care” and legal responsibility be defined?
In China’s legal context, this duty of care is closely tied to developers’ conduct during promotion and design. If developers market or design products in ways that encourage illegal use, courts are more likely to hold them accountable. For example, in the PlusToken cryptocurrency pyramid scheme case, developers leveraged blockchain and smart contracts to build and promote a fraudulent platform, defrauding numerous users. The court ruled they bore direct responsibility for enabling illegal activities and were criminally prosecuted. This underscores the need for developers in China to carefully navigate potential legal risks.
In essence, China adopts a pragmatic approach to the boundary between technology and law—one that neither fully rejects technological neutrality nor relies solely on original intent. Instead, it weighs the technology’s societal impact and real-world outcomes. For encryption technologies, this judicial stance serves both as a warning against risk and as a roadmap for compliant industry development. In an era of rapid technological advancement, legal adaptability is a shared challenge across global judicial systems—and China’s practices offer an alternative perspective on addressing it.
ManQin Law Summary: Balancing Innovation and Legal Responsibility
The Tornado Cash case offers fresh perspectives for global legal practice. Although the U.S. court’s ruling that immutable smart contracts are not “property” provides temporary legal protection for developers, the debate over technological neutrality remains unresolved. In contrast, Chinese jurisprudence places greater emphasis on developers’ social responsibility, requiring them to anticipate risks during design and deployment and to proactively adopt compliance measures. While this practical regulatory stance may constrain innovation to some extent, it also offers valuable lessons for global tech-law discourse.
At the intersection of technology and law, balancing innovation with responsibility is the only sustainable path forward. Going forward, ManQin Law looks forward to working with the industry to refine compliance frameworks and support Web3’s journey toward healthier, more sustainable growth.
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